Uber is Enron Deja Vu: Culture Trumps Strategy

A Silicon Valley Tragedy

Remember Enron’s “Smartest Guys in the Room?”

An early photo of Uber’s management team

Why did Uber spin so wildly out of control?

For over a  year now I have blogged here about the red flags flying about Travis Kalanick and Uber. Many investigative articles have been published over this time, in the New York Times and other publications, which have raised disturbing questions about Uber, Kalanick and some members of his team. The Board of Directors has finally taken action but it feels like its a day late and a dollar short.  Why did it take so long?  I have bluntly used the epithet that “Uber is Trump,” but now on reflection, it is more apt to describe Uber as Enron the sequel, and “deja vu all over again.” Remember the audio of two Enron electricity traders laughing about “screwing grandma?” That is Uber.

Culture Trumps Strategy

So as the current management adage says, culture trumps strategy.  This is not simply about the bad behavior of a few individuals and that eliminating them will solve Uber’s problems. The aggressive, confrontational business strategy is itself an integral and inextricable part of the problem. Some have said that Uber has a good business model and deserves to succeed.  I dispute that.  Jeremy Rifkin’s Third Industrial Revolution describes his vision for a new sharing economy.  The book has been read by world leaders and praised for its insights into a bright new evolving economy.  Uber and other companies like it have morphed the sharing economy into something ugly.

Uber morphed the sharing economy into “the gig economy,” epitomized by jobs without security or benefits, and the now viral video of Kalanick berating an Uber driver who was going bankrupt. SFGate also exposed the Uber operating strategy of psychologically manipulating drivers to work more hours than intended. The central principle of Kalanick’s business strategy is what he euphemistically describes as “principled confrontation.” Uber enters a market without following any existing rules or regulations, simultaneously entering into negotiations with municipalities which are typified by stalling tactics from Uber, and no intention to conclude an agreement. Uber’s goal is to take over the market by force, making any agreements with municipalities unnecessary. While pursuing its strong-arm goal, Uber has used a software tool, Greyball, to evade law enforcement. Uber is now under criminal investigation for the use of Greyball. Even the notion that Uber somehow improves traffic congestion has been debunked by a Northwestern University study commissioned by the San Francisco Transportation Authority which found that ride sharing has a heavy negative impact on San Francisco’s traffic congestion. See www.sfcta.org/TNCsToday

Uber is also facing a major lawsuit from Google for expropriating Google driverless car technology by hiring one of Google’s engineers. Uber has now fired the engineer in question, but the firing itself may be a circumstantial admission that its intent was to steal Google IP.  In another case, nearly 200 Uber employees were encouraged to use fake ID, burner phones and credit cards to sabotage Lyft, by booking and then quickly canceling more than 5000 rides with Lyft. Then there is the matter of what can now only be described as pervasive sexual harassment within Uber. Adding to all of these issues, local communities have begun to resist Uber much more aggressively. In one example, a protest movement in Oakland is opposing Uber’s plan to open offices in Oakland. There are other examples dotted around the World. Finally, there is the unresolved matter of the status of Uber’s drivers as “independent contractors or employees” which is nearing a final decision in California state and federal courts.

Clearly, Uber’s business strategy is driven by its ugly corporate culture. Stepping back to consider the complete picture, Uber’s business strategy looks to me like a house of cards.

Uber’s Leadership Conundrum

Those who know me and my blogs here know that I am a student of Harvard Business School professor John Kotter and his philosophy of leadership with humility at its core.  Uber presents a leadership conundrum for me. I was interested to hear BackChannel journalist Jessi Hempel express the same point tonight on PBS Newshour.  Uber obviously urgently needs to change its culture, yet without the wild aggressive culture defined by Kalanick, the question remains whether Uber can survive? It is not clear to me that humility could turn the Uber cultural battleship. There have also been a number of business articles suggesting that changing a corporate culture is far more challenging than changing a corporate strategy. So I am left to ponder Peter Drucker’s Four Quadrants of Managerial Behavior, and Quadrant Four’s “high task, low relationship” model for Uber. I learned this in Intel’s M Series management courses years ago. The course used the case study of the film “12 O’Clock High,” a demoralized B-17 bomber unit as its example. Gregory Peck arrives as the new unit commander and begins by “kicking ass and taking names.”  A similar case would be George Patton’s arrival in North Africa to take command of a demoralized tank unit.  My sense at the moment is the only best hope is that somehow an interim leader at Uber will have the latitude to take whatever actions he deems necessary to right the ship.  Such a solution seems doubtful at the moment.

Business Ethics Missing in Action

This morning on NPR’s Morning Edition, Nina Kim interviewed the Director of the Markulla Center for Applied Ethics at Santa Clara University, Kirk Hansen. The Center is named for early Intel and Apple executive, Mike Markkula. Mr. Hansen said that “Uber will undoubtedly become one of the most important business case studies” to emerge from Silicon Valley. Hansen went on to point out that founders of startups are often not capable of taking the company to a mature large company, and that it may be necessary to remove or reassign the founder. In the case of Uber, this is impossible because Kalanick and his founder group have the majority of shares.  This contrasts with most startups legal framework, where the investors or Board may hold the right to remove the founder in specific circumstances.

The Smartest Guys in the Room

As a grey-haired Silicon Valley alumni, I am personally offended and outraged by what has happened at Uber. I am deeply ashamed. Over the years I have worked for some well-known SV companies, startups, VC firms, and my own consultancy. I have personal knowledge of things that happened that were not kosher, and I have been present in situations where the ethics were not the best, but nothing in my Silicon Valley experience rises to the level of Uber. Something has gone wildly out of control since my time with how we conduct ourselves in business, and it is now tarnishing the history and reputation of fifty years of Silicon Valley achievements. From my own personal experience working at one wildly successful company years ago, and after rewatching the Enron documentary video,  “The Smartest Guys in the Room,” the answer is simple: too much money.

 

Source: Uber CEO Kalanick likely to take leave, SVP Michael out: source | Reuters

TECHNOLOGY NEWS | Mon Jun 12, 2017 | 4:22pm ED

By Heather Somerville and Joseph Menn | SAN FRANCISCO | Reuters

Uber Technologies Inc [UBER.UL] Chief Executive Travis Kalanick is likely to take a leave of absence from the troubled ride-hailing company, but no final decision has yet been made, according to a source familiar with the outcome of a Sunday board meeting.

Emil Michael, senior vice president, and a close Kalanick ally has left the company, the source said.

At the Sunday meeting, the company’s board adopted a series of recommendations from the law firm of former U.S Attorney General Eric Holder following a sprawling, multi-month investigation into Uber’s culture and practices, according to a board representative.

Uber will tell employees about the recommendations on Tuesday, said the representative, who declined to be identified.

The company is also adding a new independent director, Nestle executive, and Alibaba board member Wan Ling Martello, a company spokesman said.

Holder and his law firm were retained by Uber in February to investigate company practices after former Uber engineer Susan Fowler published a blog post detailing what she described as sexual harassment and a lack of a suitable response by senior managers.

The recommendations in Holder’s firm’s report place greater controls on spending, human resources and other areas where executives led by Kalanick have had a surprising amount of autonomy for a company with more than 12,000 employees, sources familiar with the matter said.

Kalanick and two allies on the board have voting control of the company. Kalanick’s forceful personality and enormous success with Uber to date, as well as his super-voting shares, have won him broad deference in the boardroom, according to the people familiar with the deliberations.

Uber CEO Travis Kalanick speaks to students during an interaction at the Indian Institute of Technology (IIT) campus in Mumbai, India, January 19, 2016. REUTERS/Danish Siddiqui/File photo

Any decision to take a leave of absence will ultimately be Kalanick’s, one source said.

The world’s most valuable venture-backed private company has found itself at a crossroads as its rough-and-tumble approach to local regulations and handling employees and drivers has led to a series of problems.

It is facing a criminal probe by the U.S. Department of Justice over its use of a software tool that helped its drivers evade local transportation regulators, sources have told Reuters.

Last week, Uber said it fired 20 staff after another law firm looked into 215 cases encompassing complaints of sexual harassment, discrimination, unprofessional behavior, bullying and other employee claims.

SILICON VALLEY SHOCK

Even a temporary departure by Kalanick would be a shock for the Silicon Valley startup world, where company founders in recent years have enjoyed more autonomy and often become synonymous with their firms.

Uber’s image, culture, and practices have been largely defined by Kalanick’s brash approach, company insiders and investors previously told Reuters.

Uber board member Arianna Huffington said in March that Kalanick needed to change his leadership style from that of a “scrappy entrepreneur” to be more like a “leader of a major global company.” The board has been looking for a chief operating officer to help Kalanick run the company since March.

The debate over Kalanick’s future comes as he is also facing a personal trauma: His mother died last month in a boating accident, in which his father was also badly injured.

Michael, described by employees as Kalanick’s closest deputy, has been a recurring flashpoint for controversy at the company.

He once discussed hiring private investigators to probe the personal lives of reporters writing stories faulting the company. Kalanick disavowed and publicly criticized the comments.

Michael will be replaced as the company’s top business development executive by David Richter, currently an Uber vice president, the company spokesman said.

Alongside Uber’s management crisis, its self-driving car program is in jeopardy after a lawsuit from Alphabet Inc alleging trade secrets theft, and the company has suffered an exodus of top executives.

One Uber investor called the board’s decisions on Sunday a step in the right direction, giving Uber an “opportunity to reboot.”

Uber Is Still Trump

Permits? We don’t need no stinkin’ permits!

UPDATE:  This February 3, 2016 post on Uber deserves an update. This week Uber announced that it lost $800 Million in its 3rd quarter. That’s correct, $800 Million in only three months. The Uber announcement tries to spin the loss as good news for Uber as ” increased by only 25% over the third quarter last year.  An $800 Million quarterly loss is right up there in the same league with Trump lost money. I guess we need to remember Trump’s admonition that debt is good, and it’s ok to lose other people’s money.  Uber’s announcement goes on to project continuing losses projected to be greater than $3 Billion next year, as Uber continues its plans for an apparent IPO for brain dead investors.

Then we have Uber’s new dispute with the California Department of Motor Vehicles and Attorney General’s office. Uber has begun operating self-driving vehicles in San Francisco without obtaining the necessary permits. Uber is claiming that they are exempt and don’t need permits to operate driverless cars. They “don’t need no stinkin’ permits,” though video posted on SFGate shows an Uber driverless vehicle running a red light on 3rd Street, right in front of SFMOMA.  Why do I feel like Uber and Trump are the same thing?

The Problem With Uber Has Absolutely Nothing To Do With Ride Sharing

Donald Trump, Travis Kalanick, and Uber

So Trump is Uber and conversely, Uber is Trump. This comparison has been made by both supporters and opponents, so as they say, there must be some truth in it. Both Uber and Trump have based their strategies on disrupting the status quo and the establishment with politically incorrect behavior.  My argument here is simply that while the disruption fostered by both Trump and Uber may appear attractive at first glance, and desirable to many, in both cases, there are much deeper ethical issues that are only now coming to the forefront.

Uber’s origins date back to a cold winter night in Paris in 2008, when founders Travis Kalanick and Garrett Camp were stranded without a cab.  Having personally also been stranded in Paris without a taxi on a cold and rainy night, I can commiserate.  But the real strategy behind the founding of Uber was to disrupt what they perceived to be an overregulated industry ripe for the picking, managed by municipalities and regional agencies ill-equipped to handle the kind of corporate pressure brought to bear by Uber.  The Uber strategy involves massive PR, faux negotiations with slow-moving regulatory bureaucracies, followed by defiantly ignoring the law, which Uber euphemistically describes as “principled confrontation.”  It is nothing less than blitzkrieg. Similarly, Donald Trump has crafted his strategy to disrupt politics as usual, with political incorrectness, bluster, and bombast.  Both Travis Kalanick of Uber and Donald Trump share the same odd appeal for their disruption, but both also have armies of critics who perceive much deeper and disturbing issues.  It all has an air faintly of Fredrick Nietzche’s Man and Superman and Ayn Rand’s philosophy of total self-interest.

Ayn Rand

I also ask rhetorically why and how Uber has managed to attract such a massive unprecedented pile of investment capital.  Uber is the current global symbol of defiant confrontation with any and all regulation of industries. Some are arguing convincingly that the huge pile of cash may have to do with sheer plutocratic greed, driven by Wall Street lobbyists, keen to roll back all regulation of capitalism everywhere.  There is no shortage of circumstantial evidence that this may be correct, from the ongoing global banking scandals to corporate tax evasion.

Both Trump and Uber also now appear to be hitting serious bumps in their strategies.  Trump ignominiously lost the Iowa Caucus and is facing a serious threat from a Republican establishment determined to stop his candidacy one way or another. Uber is facing its own disruption, a federal lawsuit by the California Public Utilities Commission, challenging Uber’s definition of their drivers as “contractors.” The California PUC lawsuit has spawned numerous other similar actions against Uber and is being closely watched by legal experts around the World, particularly in the European Union countries and India. A decision against Uber could have major global consequences for Uber’s business model.  Meanwhile, organized protests against Uber’s practices, policies, and contractor pay have also evolved and escalated.  The early protests were particularly unsuccessful and counter-productive, and which served only to aggravate the public. However, more recent protest strategies have been much more effective.  For whatever reason, Uber elected to announce its intent to reduce contract driver pay recently, which has provided a strategic opportunity for organized protests in many cities.

The core issue for me is the glaring distortion of Jeremy Rifkin’s Third Industrial Revolution into an unabashed corporate takeover of the sharing economy.  The capital feeding frenzy around Uber is disturbing, and still a potential bubble if things don’t go as planned. It also betrays myopia for Big Ideas in favor of the quick buck.

ANALYSIS

Uber discussions need to go beyond the fact it offers a cheaper ride

‘This isn’t just an Uber problem. If they get away with it, every company will do this.’

By Paul Haavardsrud, CBC News Posted: Jan 24, 2016 5:00 AM ET Last Updated: Jan 24, 2016 9:30 AM ET

A man rides his bicycle between taxis parked on the street during a protest against Uber in Rio de Janeiro, Brazil on July 24, 2015. A number of protests have cropped up the world over as the ride-hailing app grows in popularity. (Ricardo Moraes/Reuters)

This is part three of a three-part series on Uber. Read parts one and two.

Outraged taxi drivers the world over telling anyone who will listen that Uber is the devil in corporate form makes it tough, even for those so inclined, to blithely accept at face value the company’s argument that it’s just a technology firm disrupting a sheltered industry.

• Part 1: A look at Uber’s playbook
• Part 2: How Uber is waging its PR war

It would be nice if that were the case. Easier.

But nothing is ever that easy, is it? And neither is Uber.

In fairness, you could say there’s much to like about a company that can deliver a prompt ride at the push of a button, often at a cheaper price than cabs. So far, so good.

But that’s only the beginning of the Uber discussion. A closer look at the company’s particular brand of disobedience could quickly become unsettling.

Uber may like to cast itself as a harmless scofflaw that’s willing to bend a few rules for the greater good, but legal experts say its practices are hardly benign.

Uber’s confrontational approach to changing regulation is taking direct aim at the taxi industry. (Alistair Steele/CBC)

Working for its own narrow self-interest, the company’s systemic disregard for regulations — a stratagem termed “corporate nullification” — can undermine the laws of the land that everyone else follows.

“This isn’t just an Uber problem. If they get away with it, every company will do this; every company will become a platform and just say ‘oh, the laws don’t apply to us.’ If we enter into that stage, then it’s game over for vast swathes of business regulation: environmental, insurance, civil rights, worker protection, consumer protection, that’s all gone,” said Frank Pasquale, a law professor at the University of Maryland.

“People don’t see the stakes of it, they think ‘oh well, you know, we have to disrupt taxi cabs and we have to get this stuff done,’ but it doesn’t have to be done on Uber’s terms. The stakes couldn’t be higher in terms of the ability of these platforms to just get out of regulation.”

Gig economy

In the here and now, of course, warnings about the consequences of corporations flouting the rule of law can feel abstract compared to the immediate gratification of getting a cheaper ride to the airport.

That may soon change. While researchers haven’t yet reached a consensus on the number of workers participating in the so-called gig economy, most agree that new forms of contract employment made possible by companies like Airbnb, TaskRabbit and Uber are on the rise.

In the U.S., a recent poll suggests more than one in five Americans have participated in this type of on-demand contract employment. Part of the conversation now taking place there, which is beginning to migrate to Canada, involves asking what responsibilities 21st-century companies will have to workers, as well as the rest of society.

• Taxis likely hurting themselves, helping Uber with protests
• Uber debate overlooks taxi industry’s ‘silent victims’
• Uber’s NYE price surge meant painful bills for revellers

As it stands, employers and employees both pay to fund programs such as health care, employment insurance, Old Age Security and other parts of the social safety net. The question of who will cover those costs if the nature of work changes to include fewer traditional full-time positions — not to mention the fate of worker protections such as overtime and minimum wage — is still in search of an answer.

Indeed, the recent popularization of the term “gig economy” reflects thisevolution of the work world to include more part-time and contract employment and fewer of the full-time jobs that have traditionally been the bedrock of the middle class.

As for the more well-known term, “sharing economy,” it’s losing ground amidst a growing recognition that sharing isn’t really part of the equation. A transaction in which a passenger pays a driver wouldn’t seem to be any different from what happens with a taxi. Yet taking a cab isn’t known as sharing a ride.

Play Media

 Angry taxi driver confronts Uber driver1:13

Wrapping itself in the language of the sharing economy, however, allows Uber to align itself with values like co-operation, sustainability and community. It’s a smart play, if disingenuous, particularly insofar as it helps to bathe a business model that’s so nakedly commercial in a kinder, gentler light. Uber, as is often pointed out, is libertarian to its core, whether it’s the company’s attempts to dismantle regulation or its belief in the righteousness of the unfettered free market.

What happens to cabbies?

None of this, of course, makes Uber an evil corporation. At the same time, the speed at which the company, among the fastest-growing startups in the history of Silicon Valley, is crashing through the world puts it at the centre of any number of questions.

On the front lines of those looking for answers is the taxi industry. The existing system may be flawed, overregulated, and too costly, but that doesn’t mean cabbies should just be written off as collateral damage — the result of rule changes inspired by the financial ambitions of a single company.

Many taxi drivers say they can’t compete with a company that isn’t governed by the same strict, and costly, regulations. (John Rieti/CBC)

By pushing cities into making immediate changes, though, Uber is manufacturing a binary choice. To limit the decision to Uber or the current flawed system, however, is a false construct. The taxi system doesn’t need to be overhauled tomorrow and changes could come in many different ways that allow for ride-hailing services while also protecting existing taxi drivers.

“The main problem is it’s not an empty space,” said Mariana Valverde, a professor at the University of Toronto and an urban law expert. “Uber is coming in and they’re combining the power of a big, U.S.-based corporation with lots of lobbyists and lots of money, on the one hand, with a total disregard for regulations and rules. Taxi drivers have played by the rules and they’ve often followed really strict, often quite picky and annoying rules, and they’re seeing their livelihoods vanish.”

Big issues

The back-and-forth between Uber and the taxi industry opens up any number of considerations, ranging from practical to theoretical to troubling.

If Uber’s continued success pushes existing taxi fleets out of business, it’s worth wondering what happens to fares. The company’s introduction of surge pricing, which allows the price of rides to float when demand outstrips supply, points in a direction that may have customers yearning for the regulated days of yore. A market monopoly may never come to pass, but Uber’s success to date, combined with the controversies that surge pricing have already inspired, doesn’t make it a comforting thought.

Uber’s introduction of surge pricing, which allows the price of rides to float when demand outstrips supply, may one day have customers yearning for the regulated days of yore if a market monopoly is ever reached. (The Canadian Press)

The us-versus-them dynamic that’s developed between Uber and cab companies is also too often accompanied by an ugly undercurrent of racism that targets the ethnic makeup of the taxi industry. To be clear, this isn’t Uber’s fault per se, but it is an element of the ongoing confrontation that needs to be better recognized, understood and defused.

The many issues surrounding Uber can also become an issue in itself. As tales of Uber’s unsavoury tactics continue to circulate, how does someone who just wants to take an Uber across town reconcile the tension between wanting to be a good citizen, yet also a savvy consumer at the same time.

One theory, put forward by Robert Reich, suggests that no one can be blamed for seeking out a cheaper ride, regardless of how conflicted they may feel about the company offering the service. Our consumer selves, he says, are wired to look for the best deal possible and, on some level, we’ve made peace with what that entails. At the same time, he continues, serious thought must also be given to the responsibilities of citizenship.

As Uber inspires changes to the existing system, the idea of what our citizen selves might contribute to the discussion is worth considering. Yes, change is going to happen and outdated regulations need to be updated. How those changes happen, though, also matters a great deal. And not just to cabbies.

Uber Is Trump

The Problem With Uber Has Absolutely Nothing To Do With Ride Sharing

Donald Trump, Travis Kalanick, and Uber

So Trump is Uber and conversely, Uber is Trump. This comparison has been made by both supporters and opponents, so as they say, there must be some truth in it. Both Uber and Trump have based their strategies on disrupting the status quo and the establishment with politically incorrect behavior.  My argument here is simply that while the disruption fostered by both Trump and Uber may appear attractive at first glance, and desirable to many, in both cases, there are much deeper ethical issues that are only now coming to the forefront.

Uber’s origins date back to a cold winter night in Paris in 2008, when founders Travis Kalanick and Garrett Camp were stranded without a cab.  Having personally also been stranded in Paris without a taxi on a cold and rainy night, I can commiserate.  But the real strategy behind the founding of Uber was to disrupt what they perceived to be an overregulated industry ripe for the picking, managed by municipalities and regional agencies ill-equipped to handle the kind of corporate pressure brought to bear by Uber.  The Uber strategy involves massive PR, faux negotiations with slow-moving regulatory bureaucracies, followed by defiantly ignoring the law, which Uber euphemistically describes as “principled confrontation.”  It is nothing less than blitzkrieg. Similarly, Donald Trump has crafted his strategy to disrupt politics as usual, with political incorrectness, bluster, and bombast.  Both Travis Kalanick of Uber and Donald Trump share the same odd appeal for their disruption, but both also have armies of critics who perceive much deeper and disturbing issues.  It all has an air faintly of Fredrick Nietzche’s Man and Superman and Ayn Rand’s philosophy of total self-interest.

Ayn Rand

I also ask rhetorically why and how Uber has managed to attract such a massive unprecedented pile of investment capital.  Uber is the current global symbol of defiant confrontation with any and all regulation of industries. Some are arguing convincingly that the huge pile of cash may have to do with sheer plutocratic greed, driven by Wall Street lobbyists, keen to roll back all regulation of capitalism everywhere.  There is no shortage of circumstantial evidence that this may be correct, from the ongoing global banking scandals to corporate tax evasion.

Both Trump and Uber also now appear to be hitting serious bumps in their strategies.  Trump ignominiously lost the Iowa Caucus and is facing a serious threat from a Republican establishment determined to stop his candidacy one way or another. Uber is facing its own disruption, a federal lawsuit by the California Public Utilities Commission, challenging Uber’s definition of their drivers as “contractors.” The California PUC lawsuit has spawned numerous other similar actions against Uber and is being closely watched by legal experts around the World, particularly in the European Union countries and India. A decision against Uber could have major global consequences for Uber’s business model.  Meanwhile, organized protests against Uber’s practices, policies, and contractor pay have also evolved and escalated.  The early protests were particularly unsuccessful and counter-productive, and which served only to aggravate the public. However, more recent protest strategies have been much more effective.  For whatever reason, Uber elected to announce its intent to reduce contract driver pay recently, which has provided a strategic opportunity for organized protests in many cities.

The core issue for me is the glaring distortion of Jeremy Rifkin’s Third Industrial Revolution into an unabashed corporate takeover of the sharing economy.  The capital feeding frenzy around Uber is disturbing, and still a potential bubble if things don’t go as planned. It also betrays myopia for Big Ideas in favor of the quick buck.

ANALYSIS

Uber discussions need to go beyond the fact it offers a cheaper ride

‘This isn’t just an Uber problem. If they get away with it, every company will do this.’

By Paul Haavardsrud, CBC News Posted: Jan 24, 2016 5:00 AM ET Last Updated: Jan 24, 2016 9:30 AM ET

A man rides his bicycle between taxis parked on the street during a protest against Uber in Rio de Janeiro, Brazil on July 24, 2015. A number of protests have cropped up the world over as the ride-hailing app grows in popularity. (Ricardo Moraes/Reuters)

This is part three of a three-part series on Uber. Read parts one and two.

Outraged taxi drivers the world over telling anyone who will listen that Uber is the devil in corporate form makes it tough, even for those so inclined, to blithely accept at face value the company’s argument that it’s just a technology firm disrupting a sheltered industry.

• Part 1: A look at Uber’s playbook
• Part 2: How Uber is waging its PR war

It would be nice if that were the case. Easier.

But nothing is ever that easy, is it? And neither is Uber.

In fairness, you could say there’s much to like about a company that can deliver a prompt ride at the push of a button, often at a cheaper price than cabs. So far, so good.

But that’s only the beginning of the Uber discussion. A closer look at the company’s particular brand of disobedience could quickly become unsettling.

Uber may like to cast itself as a harmless scofflaw that’s willing to bend a few rules for the greater good, but legal experts say its practices are hardly benign.

Uber’s confrontational approach to changing regulation is taking direct aim at the taxi industry. (Alistair Steele/CBC)

Working for its own narrow self-interest, the company’s systemic disregard for regulations — a stratagem termed “corporate nullification” — can undermine the laws of the land that everyone else follows.

“This isn’t just an Uber problem. If they get away with it, every company will do this; every company will become a platform and just say ‘oh, the laws don’t apply to us.’ If we enter into that stage, then it’s game over for vast swathes of business regulation: environmental, insurance, civil rights, worker protection, consumer protection, that’s all gone,” said Frank Pasquale, a law professor at the University of Maryland.

“People don’t see the stakes of it, they think ‘oh well, you know, we have to disrupt taxi cabs and we have to get this stuff done,’ but it doesn’t have to be done on Uber’s terms. The stakes couldn’t be higher in terms of the ability of these platforms to just get out of regulation.”

Gig economy

In the here and now, of course, warnings about the consequences of corporations flouting the rule of law can feel abstract compared to the immediate gratification of getting a cheaper ride to the airport.

That may soon change. While researchers haven’t yet reached a consensus on the number of workers participating in the so-called gig economy, most agree that new forms of contract employment made possible by companies like Airbnb, TaskRabbit and Uber are on the rise.

In the U.S., a recent poll suggests more than one in five Americans have participated in this type of on-demand contract employment. Part of the conversation now taking place there, which is beginning to migrate to Canada, involves asking what responsibilities 21st-century companies will have to workers, as well as the rest of society.

• Taxis likely hurting themselves, helping Uber with protests
• Uber debate overlooks taxi industry’s ‘silent victims’
• Uber’s NYE price surge meant painful bills for revellers

As it stands, employers and employees both pay to fund programs such as health care, employment insurance, Old Age Security and other parts of the social safety net. The question of who will cover those costs if the nature of work changes to include fewer traditional full-time positions — not to mention the fate of worker protections such as overtime and minimum wage — is still in search of an answer.

Indeed, the recent popularization of the term “gig economy” reflects thisevolution of the work world to include more part-time and contract employment and fewer of the full-time jobs that have traditionally been the bedrock of the middle class.

As for the more well-known term, “sharing economy,” it’s losing ground amidst a growing recognition that sharing isn’t really part of the equation. A transaction in which a passenger pays a driver wouldn’t seem to be any different from what happens with a taxi. Yet taking a cab isn’t known as sharing a ride.

Play Media

 Angry taxi driver confronts Uber driver1:13

Wrapping itself in the language of the sharing economy, however, allows Uber to align itself with values like co-operation, sustainability and community. It’s a smart play, if disingenuous, particularly insofar as it helps to bathe a business model that’s so nakedly commercial in a kinder, gentler light. Uber, as is often pointed out, is libertarian to its core, whether it’s the company’s attempts to dismantle regulation or its belief in the righteousness of the unfettered free market.

What happens to cabbies?

None of this, of course, makes Uber an evil corporation. At the same time, the speed at which the company, among the fastest-growing startups in the history of Silicon Valley, is crashing through the world puts it at the centre of any number of questions.

On the front lines of those looking for answers is the taxi industry. The existing system may be flawed, overregulated, and too costly, but that doesn’t mean cabbies should just be written off as collateral damage — the result of rule changes inspired by the financial ambitions of a single company.

Many taxi drivers say they can’t compete with a company that isn’t governed by the same strict, and costly, regulations. (John Rieti/CBC)

By pushing cities into making immediate changes, though, Uber is manufacturing a binary choice. To limit the decision to Uber or the current flawed system, however, is a false construct. The taxi system doesn’t need to be overhauled tomorrow and changes could come in many different ways that allow for ride-hailing services while also protecting existing taxi drivers.

“The main problem is it’s not an empty space,” said Mariana Valverde, a professor at the University of Toronto and an urban law expert. “Uber is coming in and they’re combining the power of a big, U.S.-based corporation with lots of lobbyists and lots of money, on the one hand, with a total disregard for regulations and rules. Taxi drivers have played by the rules and they’ve often followed really strict, often quite picky and annoying rules, and they’re seeing their livelihoods vanish.”

Big issues

The back-and-forth between Uber and the taxi industry opens up any number of considerations, ranging from practical to theoretical to troubling.

If Uber’s continued success pushes existing taxi fleets out of business, it’s worth wondering what happens to fares. The company’s introduction of surge pricing, which allows the price of rides to float when demand outstrips supply, points in a direction that may have customers yearning for the regulated days of yore. A market monopoly may never come to pass, but Uber’s success to date, combined with the controversies that surge pricing have already inspired, doesn’t make it a comforting thought.

Uber’s introduction of surge pricing, which allows the price of rides to float when demand outstrips supply, may one day have customers yearning for the regulated days of yore if a market monopoly is ever reached. (The Canadian Press)

The us-versus-them dynamic that’s developed between Uber and cab companies is also too often accompanied by an ugly undercurrent of racism that targets the ethnic makeup of the taxi industry. To be clear, this isn’t Uber’s fault per se, but it is an element of the ongoing confrontation that needs to be better recognized, understood and defused.

The many issues surrounding Uber can also become an issue in itself. As tales of Uber’s unsavoury tactics continue to circulate, how does someone who just wants to take an Uber across town reconcile the tension between wanting to be a good citizen, yet also a savvy consumer at the same time.

One theory, put forward by Robert Reich, suggests that no one can be blamed for seeking out a cheaper ride, regardless of how conflicted they may feel about the company offering the service. Our consumer selves, he says, are wired to look for the best deal possible and, on some level, we’ve made peace with what that entails. At the same time, he continues, serious thought must also be given to the responsibilities of citizenship.

As Uber inspires changes to the existing system, the idea of what our citizen selves might contribute to the discussion is worth considering. Yes, change is going to happen and outdated regulations need to be updated. How those changes happen, though, also matters a great deal. And not just to cabbies.

Uber’s Distortion of the Sharing Economy

I found this important editorial opinion piece in The Guardian, the UK journal. The point of this is, IMHO, a critically important moral issue. Many of these new corporate entities, Uber in particular, when viewed without their sheep’s clothing, are doing nothing more than joining the global corporate drive to eliminate the middle class, local government control, and to nullify any opposition to their strategy of  unfettered capitalist dominance.  I almost cannot believe that I just wrote those words. Jeremy Rifkin’s Third Industrial Revolution has been distorted into a monster that is eating people’s livelihoods.

Uber and the lawlessness of ‘sharing economy’ corporates

Companies including Airbnb and Google compare themselves to civil rights heroes while using their popularity among consumers to nullify federal law

Travis Kalanick, Uber CEO. ‘Nullifying companies like Uber claim they are striking a blow against regulations they consider “out-of-date” or “anti-innovation” – their major innovation, however, is to undermine local needs and effective governance.’ Photograph: Kim Kyung-Hoon/Reuters

Frank Pasquale and Siva Vaidhyanathan

In February, Airbnb chief executive Brian Chesky compared his firm’s defiance of local housing ordinances with that of Gandhi’s passive resistance to British rule. Meanwhile, a tweeter compared Uber to Rosa Parks, defying unjust laws. Chesky quickly backed down after widespread mockery. Companies acting out of self-interest comparing themselves with the noble heroes of civil rights movements is as absurd as it is insulting.

But there is a better analogy from the US civil rights era for law-flouting firms of the on-demand economy. It’s just not the one corporate leaders claim. They are engaged in what we call “corporate nullification”, following in the footsteps of Southern governors and legislatures in the United States who declared themselves free to “nullify” federal law on the basis of strained and opportunistic constitutional interpretation.

Nullification is a wilful flouting of regulation, based on some nebulous idea of a higher good only scofflaws can deliver. It can be an invitation to escalate a conflict, of course, as Arkansas governor Orville Faubus did in 1957 when he refused to desegregate public schools and president Eisenhower sent federal troops to enforce the law. But when companies such as Uber, Airbnb, and Google engage in a nullification effort, it’s a libertarian-inspired attempt to establish their services as popular well before regulators can get around to confronting them. Then, when officials push back, they can appeal to their consumer-following to push regulators to surrender.

This happened just last week in New York City, when mayor Bill de Blasio moved to limit the number of Uber cars choking city streets during the heaviest hours of congestion. Uber pushed out advertisements voiced by celebrities including model Kate Upton and urged its wealthy users to write to city hall in protest. Mayor de Blasio stood down. Consistently, these nullifying companies claim they are striking a blow against regulations they consider “out-of-date” or “anti-innovation”. Their major innovation, however, is strategic and manipulative, and it’s meant to undermine local needs and effective governance.

Between 2005 and 2010 Google shot photos of much of the world – and many of its people – without permission for its Street View project, often pushing the limits of privacy laws along the way. In addition, Google hoovered up data from Wi-Fi networks that its cars passed through. To this day, Google has not explained why it captured all that private data. It worked. Despite some incidents in which Google had to reshoot the street scenes most regulators backed down because the public had grown used to the service or Google appeased them somehow.

Google’s strategy was to flip the defaults: Anyone who took issue with a shot on Street View was welcome to apply to have it removed. So it became our burden, not Google’s, to protect privacy. Google engaged in the same strategy of shoot (digital images) first and answer questions later when scanning copyrighted books. Some people got mad over these bold moves. Some people sued. Google worked through the conflicts later – sometimes by winning in court (as in the case of book scanning) and sometimes by losing rulings in Australia, South Korea, and Japan, and Greece, where Street View was ruled illegal in 2009.

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Republican presidential candidate Jeb Bush, puts on his seat belt gets into an Uber car after speaking at Thumbtack, an online startup in San Francisco. Photograph: Eric Risberg/AP

The analogy is most obvious in the case of an American civil rights law itself. Uber has ignored advocates for the blind, and other disabled persons, when they claim Uber’s drivers discriminate against them. In response to a lawsuit by the National Federation of the Blind, Uber bluntly asserts that it’s merely a communication platform, not the type of employer meant to be covered by the Americans with Disabilities Act. Some judges and regulators accept that reasoning; others reject it. But the larger lesson is clear: Uber’s aggressive efforts to avoid or evade disability laws are nothing less than a form of corporate nullification, as menacing to the rule of law as defiance of civil rights laws in the days after courts ruled against racial segregation in the US.

In addition, Uber has confronted admittedly stifling restrictions on taxi driver licenses in France by launching a service called UberPop. Several authorities in Europe have ruled UberPop illegal, but Uber kept it operating anyway as it appealed. Now France has charged Uber’s general director for France, Thibaud Simphal, and the company’s director for Western Europe, Pierre-Dimitri Gore-Coty with enabling taxi-driving by non-professional drivers and “deceptive commercial practices”.

One could make a strong argument that France would benefit from more taxi drivers and more competition. But that’s for the people of France to decide through their elected representatives. The spirit of Silicon Valley should not dictate policy for the rest of the world. New York, Paris, London, Cairo, and New Delhi all have different values and traffic issues. Local needs should be respected.

Consider what it would mean for such a universalising approach to prevail. The business model of Uber would become that of law-flouting bosses generally. Reincorporate as a “platform”, intermediate customer requests and work demands with an app, and voila!, far fewer laws to comply with. Worse, this rebel attitude signals to the larger culture that laws and regulations are quaint and archaic, and therefore hindrances to progress. That could undermine faith in republican government itself.

In the 1950s and 60s, Southern governors thought they’d found a similar tactic to avoid the civil rights laws that they most despised. Though the strategy failed, the idea still animates reactionaries. Former Arkansas governor Mike Huckabee, now running for president, has even suggested that the US supreme court’s recent gay marriage decision should effectively be nullified by sovereign states.

Of course, a republic can’t run without authorities who follow the rule of law. Civil disobedience by citizens can be an important challenge to corrupt or immoral politicians, but when corporate leaders themselves start breaking the law in their own narrow interests, societal order breaks down. Polishing their left-libertarian veneer, the on-demand economy firms now flouting basicemployment and anti-discrimination laws would like us to believe that they follow in the footsteps of Gandhi’s passive resistance, rather than segregationists’massive resistance. But their wealthy, powerful, nearly-all-white-and-male cast of chief executives come far closer to embodying, rather than fighting, “the man”.

As Silicon Valley guru Peter Thiel has demonstrated, the goal of tech firms is not to compete – it is to so monopolise a sector that they basically become synonymous with it. Uber’s and Airbnb’s self-reinforcing conquests of markets attract more venture capital (VC) investment, which in turn enables more conquests, which in turn attracts more VC money. As that concentration of economic power continues apace, it’s more vital than ever to dispute Silicon Valley oligarchs’ self-aggrandising assertions that they follow in the footsteps of civil rights heroes.

As allegedly “innovative” firms increasingly influence our economy and culture, they must be held accountable for the power they exercise. Otherwise, corporate nullification will further entrench a two-tier system of justice, where individuals and small firms abide by one set of laws, and mega-firms create their own regime of privilege for themselves and power over others.

Frank Pasquale is a professor at the University of Maryland School of Law and the author of Black Box Society: The Secret Algorithms that Control Money and Information (Harvard University Press, 2015).

Siva Vaidhyanathan is a professor of media studies at the University of Virginia and the author of The Googlization of Everything – and Why We Should Worry (University of California Press, 2011).